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Legend has it that in 1624 the inhabitants of the Bay of Kotor slung an iron chain across its narrowest point, the strait of Verige, to defend against raids by Barbary pirates. History and folklore abound in this romantic region of Montenegro: a Unesco-protected, 28km-long inlet of the Adriatic Sea, bounded by dramatic limestone mountains, where the land cracks open to form a huge inkblot of four secondary bays.

Greeks, Illyrians, Romans, Turks, Spanish, French, Austro-Hungarians – all have left their mark, but none has had greater influence on the vernacular architecture than the Republic of Venice. Under the Venetians’ protection from the early 15th century to 1797, merchants and ship owners in the bay grew rich, building mansions and lavish waterfront palaces.

It is this renowned maritime heritage that the Montenegrin government is now seeking to revive, albeit with an emphasis on leisure. Legislation – such as cutting VAT for maritime-related services from 19 per cent to 7 per cent – has been introduced to attract foreign investment and the elite international yachting community to the Bay of Kotor. The old shipyard at Bijela is now under tender with Italian and Dutch companies pledging a minimum investment of €15m to provide yacht repair and refitting services.

The strategy to entice wealthy visitors began soon after the country’s independence in 2006, with the sale of the former naval base at Tivat to an international consortium led by Canadian billionaire Peter Munk.

The site has since been transformed into Porto Montenegro, a marina development with residential, leisure and retail facilities, which opened in 2009. The Regent Porto Montenegro hotel on the waterfront, which is due to open this summer, is the first international hotel brand in the bay, and will complement the Aman group’s island-hotel of Sveti Stefan further along the coast.

To date, 130 apartments have been built and sold amid the landscaped Venetian-style piazzas of Porto Montenegro, and early investors have seen their risk rewarded with a 60 to 70 per cent rise in the value of their property over the past four years.

Restored sea captain's villa in Perast, €1.3m

The 48 apartments of the new Ksenija building – due for completion next summer – are selling off-plan, as are the fully serviced, nautical-themed branded residences at the Regent hotel. Those remaining range in price from €368,000, for a one-bedroom, 77 sq metre apartment in Ksenija, to €7m, for a 603 sq metre bay-view penthouse at the Regent. About 40 per cent of buyers so far are Russian.

The marina features international boutiques and restaurants, sports facilities, including a 64-metre swimming pool, concierge services and even an international Knightsbridge school. Such glitz no doubt adds a fillip to Porto Montenegro’s property prices. Yet, this deepwater marina – set to become the largest in Europe and equipped to accommodate the ever-growing number of superyachts – is also having a wider impact on the country’s housing market.

“We can accommodate any size of mega-yacht,” says marina director Tony Browne, who recently agreed a deal relating to three yachts of the Saudi royal family’s Golden Fleet including the lease of a 125-metre berth. “Our marina service is second to none, from the convenience of on-site customs clearance and sale of the vignette [the permit to sail in national waters] down to complimentary delivery of pizzas on board. Yet our prices are in line with those of the northern Adriatic – still well below the Mediterranean.” According to Porto Montenegro, a 25-metre berth in Porto Cervo, Sardinia, would cost 245 per cent more than one at its marina.

Montenegro’s non-EU status offers further financial inducements. Yachts delivered from foreign shipyards are not subject to sales tax when those vessels are registered and owned outside Montenegro. Similarly, fuel may be purchased free of duty – constituting a saving of about 40 per cent – provided that the foreign-flagged yacht temporarily leaves Montenegrin waters within 24 hours of refuelling.

Tax increases in the Italian yacht market have also worked to Montenegro’s advantage. The Bahamas-based Boka Group, which is developing two projects, including the Sea Breeze villa complex above the harbour in Kava, last year reported a 175 per cent rise in inquiries from Italian buyers.

In the wake of Porto Montenegro’s success, Azmont Investment’s Portonovi has become the area’s newest marina development. Situated across the bay near the medieval walled town of Herceg Novi, its residences are due to go on sale early next year, with delivery by the end of 2016. The 25-hectare site – just 50 minutes from Dubrovnik airport in Croatia – will feature a 250-berth marina, 100 apartments, 40 villas and a new One&Only hotel with branded residences.

Unlike Budva to the south, which is known as a “party town” marred by ugly buildings and tourist hordes, the new developments around the Bay of Kotor – which will account for €2.5bn of foreign investment over the next five years – target an elite market and are sensitive to their environment.

Each resort claims to draw inspiration from the local architectural heritage – loosely interpreted as low-rise buildings incorporating loggias, red-tile roofs and traditional stonework – and each operates a corporate social responsibility programme that aims to benefit the local community.

The largest such project is Lustica Bay – by the Egyptian-owned Swiss Orascom Group – which occupies a 690-hectare site on the Lustica peninsula. It is the first residential project in Europe to use the LEED (leadership in energy and environmental design) rating system for sustainable development and is on course to gain “platinum” status. Only 6 per cent of the land will be built upon, and the project will comprise of seven hotels and 1,000 apartments, town houses, and villas, of which the first phase will be delivered in January.

Although there will be berths for 120 yachts and a marina retail village, the focus of this development will be the 18-hole Gary Player golf course, which is vying with the Boka Group’s Royal Montenegro to be the country’s first. Studios at Lustica Bay will be priced from €175,000 and villas, featuring infinity pools and panoramic sea views, will be available from €1.82m.

The advantages of such developments are clear: security, service, managed lettings, a “clubby” social atmosphere, and plenty of amenities. For those cherishing authentic Montenegro above convenience and peace of mind, there are also rich pickings. Venture into the furthest, easternmost lobe of the bay and it is possible to find charming waterfront towns such as Ljuta, Dobrota, and Prcanj, with large stone houses and mansions dating from Venetian times.

Perast – formerly a shipbuilding yard and naval academy for Russian tsar Peter the Great – is the most desirable of these towns, and has been saved from modern accretions by strict planning laws. Strategically located at the end of the bay, opposite Verige, the town is an attractive mix of Baroque palaces, churches, towers, cobbled alleys and waterfront restaurants accessible directly by boat. “In 2006, property here could be bought for around €2,500 per square metre,” says Aleksandar Kovacevic, of Foresight Montenegro, Savills’ associates. “By 2008, prices had already risen to €10,000.” The town, he adds, is popular with Britons and the odd Hollywood couple seeking anonymity.

Foresight is offering a restored, three-bedroom house on the edge of Perast for €1.3m. Formerly the property of a Venetian sea captain, the three-storey building has a living area by the water’s edge with private terracing and direct water access.

The views, as with most properties around the bay, are spectacular and have been inspiring visitors for centuries. To paraphrase Lord Byron: “At the birth of our planet, the most beautiful encounter between the land and the sea must have happened at the coast of Montenegro.”

Teresa Levonian Cole was a guest of Porto Montenegro

Buying guide

Pros

● Dynamic economic growth and low taxation

● A deep, sheltered bay and yacht-friendly legislation

● Safe and welcoming environment, with equal status for non-nationals

● Beautiful, unspoilt scenery

Cons

● Limited range of goods

● Lack of cultural life – there is only one cinema in the capital, Podgorica

● Large cruise ships offload their passengers at Kotor

What you can buy for . . .

€100,000 A one-bedroom apartment in a traditional stone mansion, with shared pool, in Dobrota

€500,000 A three-bedroom apartment in the new Luštica Bay development

€1m A six-bedroom historic stone house with a pool in Prčanj

This article has been amended since publication to reflect the fact that Azmont Investment’s Portonovi marina development occupies a 25-hectare site, not 250 hectares as previously stated.